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Supervisor Peskin should have recused himself from the latest affordable housing vote to avoid a basic conflict of interest. 

[Publisher's note: The San Francisco Ethics Commission has informed both the Beacon and Mr. Burke that landlords are not barred from voting on this particular land-use policy. The author still contends that his position is the correct one.]

When a new apartment goes up in San Francisco, the developers are required to rent a percentage of units at or below SF's area median income. This policy is called inclusionary zoning (IZ), and the exact percentage of units per building is currently up for debate. In 2014 SF's voters chose to raise the percentage to 25%, a number that's made many projects infeasible and practically killed the housing pipeline in SF. The Board of Supervisors recently voted to lower the inclusionary component of new projects to 18%, rising to 20% over the next few years.

Compared to the pre-Prop C baseline, this new proposal puts renters on the hook for $1.65 billion in additional rent to San Francisco's landlords over the next 15 years. How? Higher inclusionary housing rates lead to more below-market-rate (BMR) units being developed, but those units come at a high cost, since they make other projects unworkable. Compared with the pre-Prop C numbers, the plan approved by Supervisors last week will add about 1,000 BMR units, at the cost of about 6,000 market rate units.

BMR units provide welcome rent relief to tenants, but there are few openings and long waiting lists. The overwhelming majority of SF's renters, including those making below the area median income, rent at market rates. Losing 6,000 market rate units means there's more competition for the existing market rate units, which drives prices up. The chief economist estimates that market rate rents will be 1.64% higher under the new policy. 1.64% higher rents mean the 13% San Francisco of renters that move in the first year are going to pay a combined $22 million more in rent to their landlords. The second year, when more people move, that number will be closer to $44 million. Over 15 years, SF's renters will pay $1.65 billion dollars more to their landlords than they would under the pre-Prop C baseline.

 

We can use the above table from San Francisco's chief economist to estimate the impact of changing the inclusionary zoning percentage. Past the baseline of 17%, a 1% increase in the inclusionary zoning percentage would add 12 additional subsidized BMR units per year, but raise home values and citywide rents by 0.15%. If 12 subsidized BMR units each provide $2000 a month in rent relief, that's about $285,000 in rent relief per year for 12 lucky families.

However, the first year of a 0.15% rent increase would amount to $2.5 million in additional rent being transferred from San Francisco renters to San Francisco landlords, according to the chief economist. The next year, as more people move and pay the higher rent, that number
increases to about $5 million. Over 15 years, the city's market rate renters will pay a total of $230 million more to landlords per percentage point increase in the inclusionary zoning percentage.

Now: We can debate whether the higher prices are worth it to help support more BMR homes. Progressive politics are supposed to help the poor. But if the goal is to build more BMR units, higher inclusionary percentages are a pretty inefficient way to do it. If San Francisco were a charity, paying $2.5 million to get $285,000 in rent relief would be like spending 89% of your budget on overhead. It's an extremely expensive way to buy rent relief for 12 extra families per year. Most families making below the area median income aren't lucky enough to be in subsidized BMR housing, and would pay higher rents if they move.

Another way to raise the money for 1000 BMR units would be a 0.7% occupancy tax on all apartments, which would directly raise $775 million for affordable housing. Even if landlords passed the entire cost of the tax to their renters, it would cost the city's renters about $875 million less than the 18% inclusionary zoning ordinance over 15 years.

The 1000 families that can stay in BMR units are clear winners from inclusionary housing percentages. But there's another group of winners from a higher inclusionary zoning percentage: Landlords and homeowners, who get to charge higher prices to tenants and sell their homes for more money. Supervisor Aaron Peskin, one of the city's strongest proponents for high percentages of inclusionary zoning, is a landlord. Peskin and Supervisor Jane Kim initially proposed a 24-27% inclusionary rate, which would have cost the city's market rate renters about $2.77 billion in higher rents over 15 years.

High inclusionary zoning percentages increase the amount of rent Peskin can charge to his tenants. Assuming Peskin rents a 1 bedroom unit for $3000, the 1.64% increase in market rate rent from an 18% inclusionary zoning rate means he's going to take $49 extra per month and $590 extra per year from his tenants, as a baseline, compared to the pre-Prop C levels. Under the Peskin-Kim plan he proposed earlier this year, market rate rents would have increase 2.73%, letting him take $980 more per year from his tenants.

A 0.15% market rate rent increase (from a 1% increase in the IZ percentage) would mean Supervisor Peskin would get an additional $5 per month/$60 per year. That's $60 per year out of his renters pockets and into his own pocket, for every one percent increase in the inclusionary zoning percentage.

These are not the biggest numbers, but they show that Peskin benefits financially from advocating for a higher inclusionary zoning percentage. More broadly, they demonstrate how landlords can benefit financially from policies that help a small number of the city's struggling renters, at the expense of the other 96% of SF's renters.

Supervisor Peskin should commit to publishing information each year on the amount of rent he charges his tenants. He could also publicly commit to increasing rent each year by no more than the Rent Board allows, even if a new tenant moves in. All San Franciscans have an interest in good governance, and these steps would help ensure Peskin is not pushing policies to line his pockets.

We welcome op-ed submissions from our readers on any topic of local interest. To submit yours, email jay@baycitybeacon.com.

Photograph by Mike Ege


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